Bristol Myers Squibb has been a strong performer in the six months, rising over 23% in that time. Investors desiring to increase income from Bristol Myers stock could look at selling covered calls on their underlying stock position to increase their income.
Bristol Myers stock, despite falling Monday, also trades above both the 50- and 200-day moving averages. In the third quarter of 2024, the company reported adjusted earnings per share of $1.80, surpassing analyst expectations of $1.49. This performance was bolstered by an 8% increase in revenue, reaching $11.89 billion. In Q4, profits fell 2% despite an 8% revenue gain.
Bristol Myers Stock Today
The stock currently yields 4.1% annually, according to MarketSurge. Savvy investors can increase that yield using covered calls.
A covered call involves buying 100 shares of the underlying stock and simultaneously selling a call option against those shares. Selling the calls limits the upside but increases the yield from the investment in the form of option premium. The investor keeps the premium generated from selling calls no matter what happens with Bristol Myers stock.
According to IBD Stock Checkup, Bristol Myers stock ranked No. 5 in its group and has a Composite Rating of 89, an EPS Rating of 57 and a Relative Strength Rating of 90.
When trading covered calls, most investors sell monthly calls against their stock to make the most of the effects of time decay. That makes a lot of sense but also requires a lot of active management.
What if we sold longer-term covered calls against Bristol Myers stock? Let's take a look.
Long-Term Covered Call on Bristol Myers Stock
On Bristol Myers stock, a Jan. 16, 2026, call option with a strike price of 65 recently sold for around $4.55, generating $455 in premium per call contract.
Purchasing 100 shares of Bristol Myers Squibb stock will cost around $6,107, but you could reduce the net cost by the $455 option premium received. Therefore, we have created a yield of (455/5,652) in 299 days, or 8.05%. The sold call produces a 9.83% annualized yield in addition to the dividend. That clearly beats the dividend yield on most stocks in the current market and still allows for around $393 of capital appreciation.
The Risk With This Trade
If BMY closes above 65 on the expiration date, the shares will be called away at 65, leaving the trader with a 15% return, which is 18.32% on an annualized basis.
Covered calls are a fantastic way to generate extra income from a stockholding while also providing some downside protection. However, investors would need to weigh the pros and cons of the stock before initiating a bullish trade like a covered call.
Please remember that options are risky, and investors can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
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Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, and is very conservative in his style. He believes patience in waiting for the best setups is the key to successful trading. Follow him on X/Twitter at @OptiontradinIQ
